PAPER – 1 : ACCOUNTING

Question No. 1 is compulsory.

Answer any five questions from the remaining six questions.
Wherever necessary, suitable assumptions should be made and disclosed
by way of note forming part of the answer.
Working Notes should form part of the answer.
Question 1
(a) Uday Constructions undertake to construct a·bridge for the Government of Uttar
Pradesh. The construction commenced during the financial year ending 31.03.2016 and
is likely to be completed by the next financial year. The contract is for a fixed price of
` 12 crores with an escalation clause. The costs to complete the whole contract are
estimated at ` 9.50 crores of rupees. You are·given the following information for the
year ended 31.03.2016:
Cost incurred upto 31.03.2016 ` 4 crores
.Cost estimated to complete the contract ` 6 crores
Escalation in cost by 5% and accordingly the contract price· is increased by 5%.
You are required to ascertain the state of completion and state the revenue and profit to
be recognized for the year as per AS-7.
(b) M/s Active Builders Ltd. invested in the shares of another company on 31 st October, 2015
at a cost of ` 4,50,000. It also earlier purchased Gold of ` 5,00,000 and Silver of
` 2,25,000 on 31 st March, 2013.
Market values as on 31 st March, 2016 of the above investments are as follows:
Shares ` 3,75,000; Gold ` 7,50,000 and Silver ` 4,35,000
How will the above investments be shown in the books of account of M/s Active Builders
Ltd. for the year ending 31 st March, 2016 as per the provision of AS-13?
(c) Argon Ltd. purchased a shop on 1 st January, 2001 at a cost of ` 8,50,000. The useful life
of the shop is estimated as 30 years with residual value of ` 25,000 and depreciation is
provided on a straight line basis. The shop was revalued on 30th June, 2015 for
` 19,50,000 and the revaluation was incorporated in the accounts.
Calculate:
(i) The surplus on revaluation;
(ii) Depreciation to be charged in the Profit and Loss account for the year ended on 31st
December, 2015.
(d) Z Limited ordered 13,000 kg. of chemicals at ` 90 per kg. The purchase price includes
excise duty of ` 5 per kg, in respect of which full CENVAT credit is admissible. Further,

© The Institute of Chartered Accountants of India

 2 INTERMEDIATE (IPC) EXAMINATION: MAY, 2016

State VAT is leviable at ` 2.5 per kg on purchase price. Freight incurred amounted to
` 30,000.
Normal transit loss is 4%. The company actually received 12,400 kg and consumed
10,000 kg. The company has received trade discount in the form of cash amounting to
` 1 per kg. The chemicals were delivered in containers. The containers were not
reusable, hence sold for ` 500. The administrative expenses incurred to bring the
chemicals were ` 10,000.
Compute the value of inventory and allocate the material cost as per AS-2. (4 x 5 = 20 Marks)
Answer
(a)
` in crore
Cost of construction of bridge incurred 31.3.16 4.00
Add: Estimated future cost 6.00
Total estimated cost of construction 10.00
Contract Price (12 crore x 1.05) 12.60 crore
Stage of completion
Percentage of completion till date to total estimated cost of construction
= (4/10)100 = 40%
Revenue and Profit to be recognized for the year ended 31 st March, 2016 as per AS 7
Proportion of total contract value recognized as revenue = Contract price x percentage of
completion
=` 12.60 crore x 40% =` 5.04 crore
Profit for the year ended 31 st March, 2016 = ` 5.04 crore less ` 4 crore = 1.04 crore
(b) As per AS 13 „Accounting for Investments‟, if the shares are purchased with an intention
to hold for short-term period then investment will be shown at the realizable value.
If equity shares are acquired with an intention to hold for long term period then it will
continue to be shown at cost in the Balance Sheet of the company. However, provision
for diminution shall be made to recognize a decline, if other than temporary, in the value
of the investments. In the given case, shares purchased on 31 st October, 2015, will be
valued at ` 3,75,000 as on 31st March, 2016.
Gold and silver are generally purchased with an intention to hold it for long term period
until and unless given otherwise. Hence, the investment in gold and silver (purchased on
31st March, 2013) shall continue to be shown at cost as on 31 st March, 2016 i.e.,
` 5,00,000 and ` 2,25,000 respectively, though their realizable values have been
increased.

© The Institute of Chartered Accountants of India

 PAPER – 1 : ACCOUNTING 3

Thus the shares, gold and silver will be shown at ` 3,75,000, ` 5,00,000 and ` 2,25,000
respectively and hence, total investment will be valued at ` 11,00,000 in the books of account
of M/s Active Builders for the year ending 31st March, 2016 as per provisions of AS 13.
(c) As per AS 6 “Depreciation Accounting”, where the depreciable assets are revalued, the
provision for depreciation should be based on the revalued amount and on the estimate
of the remaining useful lives of such assets.
Surplus on revaluation
Depreciation provided upto 30th June, 2015 ` 27,500 [(` 8,50,000 – ` 25,000)/30] p.a.]
Total depreciation ` 3,98,750 (` 27,500 p.a. for 14.5 years)
W.D. V of shop on 30 th June, 2015 (a) ` 4,51,250
[` 8,50,000 less ` 3,98,750]
Revalued value (b) ` 19,50,000
Surplus [(b) less (a)] ` 14,98,750
Depreciation to be charged in the profit and loss account for the year ended
31st Dec., 2015
Depreciation for Jan. to June 15 (before revaluation) ` 13,750 (` 27,500 /2)
Remaining useful life 15.5 years
Depreciation for July to Dec. 15(after revaluation) ` 62,097
[` 19,25,000 (19,50,000 less
25,000) / 15.5 x 1/2]
Total Depreciation for the year ended 31 st Dec., 2015 ` 75,847[` 13,750 + ` 62,097]
Note:
Depreciation for the year ended 31 st Dec., 2015 has been computed on the basis of
assumption that there is no change in residual value and the remaining useful life after
revaluation of the shop
(d) Cost of inventory and allocation of material cost
`
Purchase price (13,000 Kg. x ` 89) 11,57,000
Less: CENVAT Credit (13,000 Kg. x ` 5) (65,000)
10,92,000
Add: Freight 30,000
Allocated Administrative expenses 10,000
A. Total material cost 11,32,000

© The Institute of Chartered Accountants of India

 4 INTERMEDIATE (IPC) EXAMINATION: MAY, 2016

B. Number of units to be normally received = 96% of 13,000 Kg. Kg. 12,480

C. Normal cost per Kg. (A/B) 90.705
Allocation of material cost
Kg. `/Kg. `
Materials consumed 10,000 9,07,050
Cost of inventory (12,400- 10,000) 2,400 90.705(approx.) 2,17,692
Abnormal loss 80 7,258*
Total material cost 12,480 11,32,000
*The difference due to rounding off of normal cost per Kg has been adjusted.
Thus the inventory will be valued at ` 2,17,692.
Note:
1. The Company has received trade discount in the form of cash. This discount has
been treated as trade discount in the given answer.
2. Abnormal losses are recognized as separate expenses.
3. Containers are used for delivery of the chemicals and are not reusable. Cost of
these containers is treated as selling and distribution expense. The sale value of
these containers will be credited to Profit and Loss Account and shall not be
considered for the purpose of valuation of inventory.
Alternatively, the sales value of container amount of ` 500 may be deducted, while
computing material cost. In that case the material cost will be computed as
` 11,31,500 (11,32,000-500) instead of ` 11,32,000. Accordingly the allocation of
material cost will get changed.
4. State VAT has not been included in the cost of materials in the above answer as
VAT is generally credited in the later course of time.
Question 2
Given below are the Balance Sheet of two companies as on 31st December, 2015.
A Limited
Liabilities ` Assets `
Share Capital: Patent 1,00,000
Issued and fully paid up Building 5,40,000
50,000 8% Cumulative Plant and Machinery 15,10,000
Preference Shares of ` 10 each 5,00,000 Furniture 75,000

© The Institute of Chartered Accountants of India

 PAPER – 1 : ACCOUNTING 5

1,50,000 Equity shares of ` 10 15,00,000 Investment 1,55,000

each
General Reserve 7,65,000 Stock 3,58,000
Profit and Loss account 1,25,000 Sundry Debtors 72,000
Sundry Creditors 60,000 Cash and Bank 1,40,000
29,50,000 29,50,000

B Limited
Liabilities ` Assets `
Share Capital: Goodwill 62,000
Issued and fully paid Motor Car 1,26,000
50,000 Shares of ` 10 each 5,00,000 Furniture 58,000
Profit and Loss Account 45,000 Stock 2,40,000
Sundry Creditors 31,000 Sundry Debtors 70,000
Cash and Bank 20,000
5,76,000 5,76,000
It has been agreed that both these companies should be wound up and a new company AB
Ltd. should be formed to acquire the assets of both the companies on the following terms and
conditions:
(i) AB Ltd. is to have an authorized capital of ` 36,00,000 divided into 60,000, 8%
cumulative preference shares of ` 10 each and 3,00,000 equity shares of ` 10 each.
(ii) AB Ltd. to purchase the whole of the assets of A Ltd. (except cash and Bank balances)
for ` 28,25,000 to be settled as to ` 5,75,000 in cash and as to the balance by issue of
1,80,000 equity shares, credited as fully paid, to be treated as valued at ` 12.50 each.
(iii) AB Ltd. is to purchase the whole of the assets of B Ltd. (except cash and bank balances)
for ` 4,91,000 to be settled as to ` 16,000 in cash and as to the balance by issue of
38,000 equity shares, credited as fully paid, to be treated as valued at ` 12.50 each.
(iv) A Ltd. and B Ltd. both are to be wound up, the two liquidators distributing the shares in
AB Ltd. in kind among the equity shareholders of the respective companies.
(v) The liquidator of A Ltd. is to pay the preference shareholders ` 12 in cash for every
share held in full satisfaction of their claims.

© The Institute of Chartered Accountants of India

 6 INTERMEDIATE (IPC) EXAMINATION: MAY, 2016

(vi) AB Ltd. is to make a public issue of 60,000, 5%  cumulative preference shares at a

premium of 10% and 30,000 equity shares at the issue price of ` 12.50 per share, all
amount payable in full on application.
It is estimated that the cost of liquidation (including the liquidators' remuneration) will be
` 10,000 in case of A Ltd. and ` 5,000 in case of B Ltd. and that the preliminary expenses of
AB Ltd. will amount to ` 24,000· exclusive of the underwriting commission of ` 38,900 payable
on the public issue.
You are required to prepare the initial Balance Sheet of AB Ltd. on the basis that all assets
other than goodwill are taken over at the book value. (16 Marks)
Answer
Balance Sheet of AB Ltd.

Particulars Notes `
Equity and Liabilities
1 Shareholders' funds
a Share capital 1 30,80,000
b Reserves and Surplus 2 6,17,100
2 Current liabilities
a Other liabilities 38,900
Total 37,36,000
Assets
1 Non-current assets
a Fixed assets
Tangible assets 3 23,09,000
Intangible assets 4 1,12,000
b Non-current investments 1,55,000
2 Current assets
a Inventories (3,58,000 + 2,40,000) 5,98,000
b Trade receivables (72,000 +70,000) 1,42,000
c Cash and cash equivalents 4,20,000
Total 37,36,000


To be read as 8%

© The Institute of Chartered Accountants of India

 PAPER – 1 : ACCOUNTING 7

Notes to accounts
`
1 Share Capital
Authorized share capital
3,00,000 equity shares of ` 10 each 30,00,000
60,000, 8% cumulative Preference Shares of `10 each 6,00,000 36,00,000
Equity share capital
2,48,000 equity shares of ` 10 each
(Of the above shares, 2,18,000 shares have been 24,80,000
issued for consideration other than cash)
Preference share capital
60,000, 8% cumulative Preference Shares of `10 each 6,00,000
Total 30,80,000
2 Reserves and Surplus
Debit balance of Profit and Loss Account
Underwriting commission 38,900
Preliminary expenses 24,000 (62,900)
Securities Premium A/c
(2,48,000 equity shares x 2.50) 6,20,000
(60,000 Preference shares x ` 1 ) 60,000 6,80,000
6,17,100
3 Tangible assets
Building 5,40,000
Motor car 1,26,000
Plant & machinery 15,10,000
Furniture 1,33,000 23,09,000
4 Intangible assets
Goodwill (W.N. 4) (15,000 +62,000-65,000) 12,000
Patents 1,00,000 1,12,000

© The Institute of Chartered Accountants of India

 8 INTERMEDIATE (IPC) EXAMINATION: MAY, 2016

Working Notes:
1. Mode of discharge of Purchase Consideration of A Ltd.
`
Cash payment 5,75,000
Equity shares (1,80,000 Shares x ` 12.5) 22,50,000
Total Purchase consideration 28,25,000
2. Mode of discharge of Purchase Consideration of B Ltd.
`
Cash payment 16,000
Equity shares (38,000 shares x ` 12.5) 4,75,000
Total Purchase consideration 4,91,000
3. Cash at bank balance in the initial balance sheet of AB Ltd.
Cash and Bank Account
` `
To Issue of preference shares By Payment to A ltd. 5,75,000
(60,000 x 11) 6,60,000 By Payment to B ltd. 16,000
To Equity shares By Preliminary expenses 24,000
(30,000 x 12.50) 3,75,000 By Balance c/d 4,20,000
10,35,000 10,35,000
4. Calculation of goodwill/ capital reserve of A Ltd. & B Ltd.
Particulars A Ltd. B Ltd.
Business Purchase A/c 28,25,000 4,91,000
Less: Goodwill 62,000
Patent A/c 1,00,000 -
Building A/c 5,40,000 -
Plant & Mach. A/c 15,10,000 -
Motor car A/c - 1,26,000
Furniture A/c 75,000 58,000
Investment A/c 1,55,000 -
Stocks A/c 3,58,000 2,40,000
Debtors A/c 72,000 (28,10,000) 70,000 (5,56,000)
Goodwill / Capital reserve (Bal. fig.) 15,000 (65,000)
Net goodwill (15,000 +62,000 -65,000) = 12,000

© The Institute of Chartered Accountants of India

 PAPER – 1 : ACCOUNTING 9

Note:
1. As per the information given in the question, only the assets of A Ltd. and B Ltd. are
taken over by AB Ltd. Thus the creditors are considered to be paid by the liquidators of
the respective companies and hence being not taken over by AB Ltd.
2. As per the information given in the second last para of the question, it is stated that the
preliminary expenses of AB Ltd. will amount to ` 24,000 exclusive of the underwriting
commission of ` 38,900 payable on the public issue. It has been assumed that ` 24,000
has been paid and underwriting commission is still payable in the balance sheet of the
amalgamated company. Alternatively, any other reasonable assumption about this may
be considered.
3. Preliminary expenses and underwriting commission have been written off as per the
provisions of Accounting standards.
Question 3
(a) The following is the Balance Sheet of Manish and Suresh as on 1st April, 2015:
Liabilities ` Assets `
Capital: Building 1,00,000
Manish 1,50,000 Machinery 65,000
Suresh 75,000 Stock 40,000
Creditors for goods 30,000 Debtors 50,000
Creditors for expenses 25,000 Bank 25,000

2,80,000 2,80,000
They give you the following additional information:
(i) Creditors' Velocity 1.5 month & Debtors' Velocity 2 months.
(ii) Stock level is maintained uniformly in value throughout all over the year.
(iii) Depreciation on machinery is charged @ 10%, Depreciation on building @ 5% in
the current year.
(iv) Cost price will go up 15% as compared to last year and also sales in the current
year will increase by 25% in volume.
(v) Rate of gross profit remains the same.
(vi) Business Expenditures are ` 50,000 for the year. All expenditures are paid off in
cash.
(vii) Closing stock is to be valued on LIFO Basis.

© The Institute of Chartered Accountants of India

 10 INTERMEDIATE (IPC) EXAMINATION: MAY, 2016

Prepare Trading, Profit and Loss Account, Trade Debtors A/c and Trade Creditors A/c for
the year ending 31.03.2016.
(b) Following information has been given for Bharat Sports Club, Delhi for the year ending
31.12.2014 and 31.12.2015.
31.12.2014 31.12.2015
Building (subject to 10% depreciation for the current year) 60,000 ?
Furniture (subject to 10% depreciation for the current year) - 20,000
Stock of Sports Materials 5,000 2,000
Prepaid Insurance 3,000 6,000
Outstanding Subscription 12,000 8,000
Advance Subscription 6,000 4,000
Outstanding Locker Rent - 6,000
Advance Locker Rent received - 2,000
Outstanding Rent for Godown 6,000 3,000
12% General Fund Investments 2,00,000 2,00,000
Accrued Interest on above - 4,000
Cash Balance 1,000 64,000
Bank Balance 2,000 -
Bank Overdraft - 2,000
Additional Information:
(i) Entrance fees received ` 20,000, Life membership fees received ` 20,000 during
the year.
(ii) Surplus from Income and Expenditure Account ` 60,000.
(iii) It is the policy of the club to treat 60% of entrance fees and 40% of life membership
fees as revenue nature.
(iv) The furniture was purchased on 01.01.2015.
Prepare Opening and Closing Balance Sheet of Bharat Sports Club as on 31st December,
2014 and 31 st December, 2015 respectively. (8 + 8 = 16 Marks)
Answer
(a) Trading and Profit and Loss account
(for the year ending 31st March, 2016)
Particulars ` Particulars `
To Opening Stock 40,000 By Sales 4,31,250

© The Institute of Chartered Accountants of India

 PAPER – 1 : ACCOUNTING 11

To Purchases (Working Note) 3,45,000 By Closing Stock 40,000

To Gross Profit c/d (20% on
sales) 86,250
4,71,250 4,71,250
To Business Expenses 50,000 By Gross Profit b/d 86,250
To Depreciation on :
Machinery 6,500
Building 5,000 11,500
To Net profit 24,750
86,250 86,250
Trade Debtors Account
Particulars ` Particulars `
To Balance b/d 50,000 By Bank (bal.fig.) 4,09,375
To Sales 4,31,250 By Balance c/d (1/6 of 4,31,250) 71,875
4,81,250 4,81,250
Trade Creditors Account
Particulars ` Particulars `
To Bank (Balancing figure) 3,31,875 By Balancing b/d 30,000
To Balance c/d/ (1/8 of ` 3,45,000) 43,125 By Purchases 3,45,000
3,75,000 3,75,000
Working Note:
`
(i) Calculation of Rate of Gross Profit earned during previous year
A Sales during previous year (` 50,000 x 12/2) 3,00,000
B Purchases (` 30,000 x 12/1.5) 2,40,000
C Cost of Goods Sold (` 40,000 + ` 2,40,000 – ` 40,000) 2,40,000
D Gross Profit (A-C) 60,000
E ` 60,000 20%
Rate of Gross Profit x 100
` 3,00,000
(ii) Calculation of sales and Purchases during current year `
A Cost of goods sold during previous year 2,40,000

© The Institute of Chartered Accountants of India

 12 INTERMEDIATE (IPC) EXAMINATION: MAY, 2016

B Add: Increases in volume @ 25 % 60,000

3,00,000
C Add: Increase in cost @ 15% 45,000
D Cost of Goods Sold during Current Year 3,45,000
E Add: Gross profit @ 25% on cost (20% on sales) 86,250
F Sales for current year [D+E] 4,31,250
Note: It has been considered that all sales and purchases are on credit basis only and
there are no cash purchases and sales.
(b) Balance Sheet of Bharat sports club as at 31 st December, 2014
Liabilities ` Assets `
Outstanding Rent 6,000 Building 60,000
Advance Subscription 6,000 Stock of Sports materials 5,000
Capital Fund 2,71,000 Prepaid Insurance 3,000
(balancing Figure ) Outstanding subscription 12,000
12% General Fund Investments 2,00,000
Cash Balance 1,000
Bank Balance 2,000
2,83,000 2,83,000
Balance Sheet of Bharat Sports club as at 31st December, 2015
Liabilities ` Assets `
Outstanding Rent 3,000 Building
Advance Subscription 4,000 Book Value 60,000
Advance Locker Rent 2,000 Less: Depreciation 6,000 54,000
Bank Overdraft 2,000 Furniture Cost 20,000
Capital Fund: Less: Depreciation 2,000 18,000
Opening Balance 2,71,000 Stock of sports materials 2,000
Add: Entrance Fees 8,000 Prepaid Insurance 6,000
[20,000 x 40%] Outstanding Subscription 8,000
Add: Life Membership 12,000 Outstanding Locker Rent 6,000
fee
[` 20,000 x 60%] 12% General 2,00,000
Add: Surplus 60,000 3,51,000 Fund Investments
Accrued Interest on 12%

© The Institute of Chartered Accountants of India

 PAPER – 1 : ACCOUNTING 13

General Fund 4,000

Investments
Cash Balance 64,000
3,62,000 3,62,000

Question 4
(a) Girish Transport Ltd. purchased from NCR Motors 3 electric rickshaws costing ` 60,000
.
each on the hire purchase system on 1.1.2013. Payment was to be made `' 30,000 down
and the remainder in 3 equal installments payable on 31.12.2013, 31.12.2014 and
31.12.2015 together with interest @ 10% p.a. Girish Transport Ltd. writes off depreciation
@ 20% p.a. on the reducing balance. It paid the installment due at the end of 1st year i.e.
31.12.2013 but could not pay next on 31.12.2014. NCR Motors agreed to leave one
e-rickshaw with the purchaser on 31.12.2014 adjusting the value of the other two
e-rickshaws against the amount due on 31.12.2014. The e-rickshaws were valued on the
basis of 30% depreciation annually on WDV basis.
.
Show the necessary Ledger accounts in the books of Girish Transport Ltd. for the year
2013, 2014, and 2015.
(b) A Ltd. purchased on 1st April, 2015 8% convertible debenture in C Ltd. of face value of
` 2,00,000 @ ` 108. On 1st July, 2015 A Ltd. purchased another ` 1,00,000 debenture
@ ` 112 cum interest.
On 1st October, 2015 ` 80,000 debenture was sold @ ` 105. On 1st December, 2015, C
Ltd. give option for conversion of 8% convertible debentures into equity share of ` 10
each. A Ltd. receive 5,000 equity share in C Ltd. in conversion of 25% debenture held on
that date. The market price of debenture and equity share in C Ltd. at the end of year
2015 is ` 110 and ` 15 respectively.
Interest on debenture is payable each year on 31st March, and 30th September.
The accounting year of A Ltd. is calendar year.
Prepare investment account in the books of A Ltd. on average cost basis.
(8 + 8 = 16 Marks)
Answer
(a) Ledger Accounts in the books of Girish Transport Ltd.
E-Rickshaws Account
Year ` Year `
1.1.13 To NCR Motors A/c 1,80,000 31.12.13 By Depreciation A/c 36,000
By Balance c/d 1,44,000
1,80,000 1,80,000
1.1.14 To Balance b/d 1,44,000 31.12.14 By Depreciation 28,800

© The Institute of Chartered Accountants of India

 14 INTERMEDIATE (IPC) EXAMINATION: MAY, 2016

By NCR Motors
(value of 2 E-
Rickshaw after
depreciation for 2
years @ 30%) 58,800
By P & L A/c (bal.fig.) 18,000
By Balance c/d (one
E-Rickshaw less
depreciation for 2
years) @ 20% 38,400
1,44,000 1,44,000
1.1.15 To Balance b/d 38,400 31.12.15 By Deprecation A/c 7,680
By Balance c/d 30,720
38,400 38,400

NCR Motors Account

Year ` Year `
1.1.13 To Bank A/c 30,000 1.1.13 By E-Rickshaws A/c 1,80,000
31.12.13 To Bank A/c 65,000 By Interest @ 10% on
` 1,50,000 15,000
To Balance c/d 1,00,000
1,95,000 1,95,000
31.12.14 To E-Rickshaws A/c 58,800 1.1.14 By Balance b/d 1,00,000
To Balance c/d 51,200 By Interest @ 10% on
` 1,00,000 10,000
1,10,000 1,10,000
31.12.15 To Balance c/d 56,320 1.1.15 By Balance b/d 51,200
By Interest @ 10% on
` 51,200 5,120
56,320 56,320

Note:
In the absence of any information regarding payment of the balance amount of ` 56,320
by Girish Transport Ltd. to NCR Motors Ltd., it has been assumed in the above solution
that the balance payment amounting ` 56,320 had not been made till 31st Dec. 2015.

© The Institute of Chartered Accountants of India

 (b) Investment Account for the year ending on 31 st December, 2015
Scrip : 8% Convertible Debentures in C Ltd.
[Interest Payable on 31 st March and 30 th September]
Date Particulars Nominal Interest Cost ` Date Particulars Nominal Interest Cost (`
value ` ` Value (`) (`
1.4.15 To Bank A/c 2,00,000 - 2,16,000 30.09.15 By Bank A/c - 12,000 -
1.7.15 To Bank A/c 1,00,000 2,000 1,10,000 [`3,00,000 x 8% x (6/12]
(W.N.1)
31.12.15 To P & L A/c - 14,033 - 1.10.15 By Bank A/c 80,000 84,000
[Interest] 1.10.15 By P&L A/c (loss) 2,933
(W.N.1)

© The Institute of Chartered Accountants of India

1.12.15 By Bank A/c (Accrued 733
interest)
(` 55,000 x .08x 2/12)
1.12.15 By Equity shares in C 55,000 59,767
Ltd. (W.N. 3 and 4)
PAPER – 1 : ACCOUNTING

31.12..15 By Balance c/d (W.N.5) 1,65,000 3,300 1,79,300

3,00,000 16,033 3,26,000 3,00,000 16,033 3,26,000
15
 16 INTERMEDIATE (IPC) EXAMINATION: MAY, 2016

SCRIP: Equity Shares in C LTD.

Date Particulars Cost ( `) Date Particulars Cost (`)
1.12.15 To 8 % debentures 59,767 31.12.15 By balance c/d 59,767
Working Notes:
(i) Cost of Debenture purchased on 1 st July = `1,12,000 – `2,000 (Interest)
= `1,10,000

(ii) Cost of Debentures sold on 1 st Oct.

= (`2,16,000 + `1,10,000) x 80,000/3,00,000 = ` 86,933
(iii) Loss on sale of Debentures = ` 86,933– `84,000 = `2,933
Nominal value of debentures converted into equity shares =` 55,000
[(` 3,00,000 – 80,000) x.25]

Interest received before the conversion of debentures

Interest on 25% of total debentures = 55,000 x 8% x 2/12 = 733
(iv) Cost of Debentures converted = (` 2,16,000 + `1,10,000) x 55,000/3,00,000
= ` 59,767

(v) Cost of closing balance of Debentures = (` 2,16,000 + `1,10,000) x

1,65,000 / 3,00,000
= ` 1,79,300
(vii) Closing balance of Debentures has been valued at cost being lower than the market
value i.e. ` 1,81,500 (` 1,65,000 @ ` 110)
(viii) 5,000 equity Shares in C Ltd. will be valued at cost of ` 59,767 being lower than the
market value ` 75,000 (` 15 x5,000)
Note: It is assumed that interest on debentures, which are converted into cash, has been
received at the time of conversion.
Question 5
(a) A firm has decided to take out a loss of profit policy for the year 2016 and given the
following information for the last accounting year 2015.
Variable manufacturing expenses ` 14,20,000, Standing charges ` 1,50,000, Net Profits
` 80,000, Non-operating income ` 2,500, Sales ` 18,00,000.
Compute the sum to be insured in each of the following alternative cases showing the
anticipation for the year 2016:

© The Institute of Chartered Accountants of India

 PAPER – 1 : ACCOUNTING 17

(i) If sales will increase by 15%.

(ii) If sales will increase by 15% and only 50% of the present standing charges are to
be insured.
(iii) If sales and variable expenses will increase by 15% and standing charges will
increase by 10%.
(iv) If sales will increase by 15% and variable expenses will decrease by 5%.
(v) If sales will increase by 10% and standing charges will increase by 15%.
(vi) If the turnover and standing charges will increase by 15% and variable expenses
will decrease by 10%·but only 50% of the present standing charges are to be
insured.
(b) Rahim has a current account with partnership firm. It has debit balance of ` 2,40,000 as
on 1.04.2015. He has further deposited the following amounts:
Date Amount (`)
14/04/2015 1,20,000
30/04/2015 3,00,000
18/05/2015 1,23,000
He withdrew the following amounts:
Date Amount ( ` )
29/04/2015 97,000
09/05/2015 1,71,000
t .

Show Rahim’s A/c in the ledger of the firm. Interest is to be calculated at 10% on debit
balance and 8% on credit balance. You are required to prepare current account as on
31st May, 2015 by means of product of balance method. (8 + 8 = 16 Marks)
Answer
(a) Statement showing computation of sum insured under various cases
(i) (ii) (iii) (iv) (v) (vi)
Sales 20,70,000 20,70,000 20,70,000 20,70,000 19,80,000 20,70,000
Less: Variable 16,33,000 16,33,000 18,77,950 15,51,350 15,62,000 14,69,700
exp
Gross profit 4,37,000 4,37,000 1,92,050 5,18,650 4,18,000 6,00,300
Add: increase in - - 15,000 - 22,500 11,250*
Insured standing
charges

© The Institute of Chartered Accountants of India

 18 INTERMEDIATE (IPC) EXAMINATION: MAY, 2016

Less: uninsured
standing charges - (75,000) - - - (75,000)
Sum insurable 4,37,000 3,62,000 2,07,050 5,18,650 4,40,500 5,36,550

Note:
1. The above solution is based on the assumption that increase in sale is due to
increase in volume of sales. Alternatively, it may be assumed that this increase is
because of rise in selling price. In that case, there will be no proportionate increase
in variable expenses and the answer will get changed accordingly.
2. *In case (vi), it is given in the question that 50% of the present standing charges are
to be insured. It is assumed in the above answer that 50% of the increased standing
charges are insured.
3. In case (iii), 15% increase in variable expenses has been calculated after
considering proportionate increase in variable expenses due to increase in turnover.
(b) Rahim’s Current Account with Partnership firm (as on 31.5.15)
Date Particulars Dr Cr Balance Dr. Days Dr Cr
or Product Product
(` ) (`) (`) Cr. (` ) (` )
1.4.15 To Bal b/d 2,40,000 2,40,000 Dr. 13* 31,20,000
14.4.15 By Cash A/c 1,20,000 1,20,000 Dr. 15 18,00,000
29.4.15 To Self 97,000 2,17,000 Dr. 1 2,17,000
30.4.15 By Cash A/c 3,00,000 83,000 Cr. 9 7,47,000
9.5.15 To Self 1,71,000 88,000 Dr. 9 7,92,000
18.5.15 By Cash A/c 1,23,000 35,000 Cr. 14* 4,90,000
31.5.15 To Interest A/c 1,361 Dr.
31.5.15 By Bal. c/d 33,639
5,43,000 5,43,000 59,29,000 12,37,000

Interest Calculation:
On ` 59,29,000x 10% x 1/365 = ` 1,624
On ` 12,37,000 x 8% x 1/365 = (` 271)
Net interest to be debited = (`1,353)
Note: *In the given answer, starting/transaction date has been considered and the date
of next transaction has been ignored for the purpose of calculation of number of days.

© The Institute of Chartered Accountants of India

 PAPER – 1 : ACCOUNTING 19

Question 6
Ajay, Vijay and Sanjay are partners sharing Profit & Loss in the ratio of 2:3:1. The Balance
Sheet of the firm as on 31.03.2015 is as follows:
Liabilities ` Assets `
Capital A/c: Furniture & Fixture 30,000
Vijay’s Capital 85,000 Office equipment 20,000
Sanjay’s Capital 68,000 Motor Car 60,000
General Reserve A/c 30,000 Stock 40,000
Sundry Creditors 25,000 Sundry Debtors 20,000
Cash at Bank 18,000
Ajay’s Capital 20,000

2,08,000 2,08,000

Kamal is admitted as· a new. partner with effect from 1 st April, 2015 by receiving 1/4 share in
the profit & loss of the firm. The· profit or loss sharing .ratios between other partners remain
same as before. It was agreed that Kamal would bring. some private furniture worth ` 3,000
and private stock worth ` 5,000 and balance in cash towards his capital.
The following adjustments are to be made prior to Kamal admission:
1. Goodwill of the firm is to be valued at 2 years purchase of the average profit of last 3
years. The profits for the last 3 years were ` 35,900, ` 38,200 and ` 31,500. However on
checking of the past records it was noticed that on 01.04.11 a new furniture costing,
` 8,000 was purchased but wrongly debited to revenue and also in year 2012-13, a
purchase invoice for ` 4,000 has been omitted in the book. The firm charged
depreciation on furniture @ 10% on original cost. Your calculation of goodwill is to be
made on the basis of correct profits. It is agreed among existing partners that Sanjay ’s
interest in the goodwill of the firm is only up to value of ` 42,000.
2. Motor Car is taken over by Vijay at ` 70,000.
3. Office equipment is revalued at ` 25,000.
4. Expenses incurred but not paid of ` 6,500 are provided for. ·
5. Value of the stock is to be reduced by 5%.
6. Kamal is to bring proportionate capital. Capital of Vijay, Ajay and Sanjay are also to be
adjusted in profit sharing ratio.

© The Institute of Chartered Accountants of India

 20 INTERMEDIATE (IPC) EXAMINATION: MAY, 2016

Assuming the above mentioned adjustments are duly carried out, show the revaluation
account, partner's capital accounts and the Balance Sheet of the firm after Kamal’s admission.
(16 Marks)
Answer
Revaluation Account
` `
To Stock 2,000 By Motor car 10,000
To Expenses 6,500 By Office equipment 5,000
To Purchases Omitted 4,000
To Capital A/c
Ajay 833
Vijay 1,250
Sanjay 417 2,500
15,000 15,000

© The Institute of Chartered Accountants of India

 Partners’ Capital Accounts
Particulars Ajay Vijay Sanjay Kamal Particulars Ajay Vijay Sanjay Kamal
Before admission
To Balance b/d 20,000 - - - By bal b/d - 85,000 68,000 -
To Motor Car - 70,000 - - By Reserve 10,000 15,000 5,000
To Balance c/d 16,087 69,130 81,127 - By Furniture 1,600 2,400 800
By Revaluation A/c 833 1,250 417 -
By Goodwill 23,654 35,480 7,000 -
Total 36,087 1,39,130 81,217 36,087 1,39,130 81,217
At the time of admission

© The Institute of Chartered Accountants of India

To Goodwill 17,395 26,094 5,250 17,395 By Balance b/d 16,087 69,130 81,127 -
To Balance c/d - 43,036 75,967 - By assets - - - 8,000
By bal c/d 1,308 - - 9,395
Total 17,395 69,130 81,217 17,395 17,395 69,130 81,217 17,395
PAPER – 1 : ACCOUNTING

Adjustments to make Capital proportionate

To balance b/d 1,308 - - 9,395 By bal b/d - 43,036 75,967 -
To Bank (bal. fig.) - - 56,351 -
To balance c/d 39,232 58,847 19,616 39,232 By Bank (bal. fig.) 40,540 15,811 - 48,627
(WN 4)
Total 40,540 58,847 75,967 48,627 40,540 58,847 75,967 48,627
21
 22 INTERMEDIATE (IPC) EXAMINATION: MAY, 2016

Balance Sheet of the Firm (after Kamal’s admission)

Equity & Liabilities ` Assets `
Capital Account: Furniture& fixture 37,800
Ajay 39,232 (30,000 +3,000+4,800)
Vijay 58,847 Office equipment 25,000
Sanjay 19,616 Stock (38,000 +5,000) 43,000
Kamal 39,232 Debtors 20,000
Creditors (25,000 +4,000) 29,000 Cash at Bank (W. N. 5) 66,627
Outstanding Expenses 6,500
1,92,427 1,92,427
Working Notes:
1. Computation of New Profit sharing ratio
Since Kamal‟s Share= 1/4 th, Balance 3/4 th to be shared by Ajay, Vijay and Sanjay in the
ratio 2:3:1
Ajay Vijay Sanjay Kamal Total
New Ratio 2 3 2 3 3 3 1 3 1 1 2 2:3:1:2
      
6 4 8 6 4 8 6 4 8 4 8
2. Computation of Goodwill
Year 12-13 13-14 14-15 Total
Profit 35,900 38,200 31,500
Less: Depreciation (800) (800) (800)
Purchase invoice omitted (4,000) _ _
31,100 37,400 30,700 99,200
Average Profit 99,200/3 ` 33,067
Goodwill at 2 years purchase ` 33,067  2 ` 66,134
3. (i) Distribution of Goodwill to be credited to Ajay, Vijay and Sanjay
Particulars Ajay Vijay Sanjay Total
First – ` 42,000 to be distributed among all 14,000 21,000 7,000 42,000
the Partners in the ratio of 2:3:1
Balance - ` 24,134 to be distributed
between Ajay and Vijay in the ratio 2:3 9,654 14,480 - 24,134
Total 23,654 35,480 7,000 66,134

© The Institute of Chartered Accountants of India

 PAPER – 1 : ACCOUNTING 23

(ii) Writing off of Goodwill

Particulars Ajay Vijay Sanjay Kamal Total
First – ` 42,000 to be debited 10,500 15,750 5,250 10,500 42,000
among all the Partners in the
ratio of 2:3:1:2
Balance- ` 24,134 to be
distributed between Ajay,Vijay
and kamal in the ratio 2:3:2 6,895 10,344 - 6,895 24,134
Total 17,395 26,094 5,250 17,395 66,134
4. Computation of proportionate Capital of Partners
`
Combined Capital of Ajay, Vijay, Sanjay (Existing partners) – as per 1,17,695
balance derived in partners‟ Capital Account = ` 43,036+ ` 75,967 -
1,308= 1,17,695
Share of Ajay, Vijay and Sanjay in the new firm after deducting Kamal‟s 3/4th
1/4th share
Total Capital of the Firm after Kamal‟s admission = ` 1,17,695÷ 3/4th 1,56,927
Apportionment of Capital in New Profit Sharing Ratio i.e. Proportionate Capital of
partners
Partners Ajay Vijay Sanjay Kamal
Ratio 2 3 1 2
Proportionate Capital of partners (1,56,927) 39,232 58,847 19,616 39,232
5. Cash at Bank
= Given ` 18,000 +40,540+ 15,811+ 48,627– 56,351 = ` 66,627
Note:
1. In the above solution, adjustment of furniture for ` 4,800 has been routed through
Partners‟ capital accounts. Alternatively, it may also be routed through Revaluation A/c.
2. Since goodwill is not a purchased goodwill, it has been written off in the above solution,
in accordance with the AS 10.
3. As per the requirement given in the question, it is agreed among existing partners that
Sanjay‟s interest in the goodwill of the firm is only upto the value of ` 42,000. It has been
assumed in the above solution that Sanjay is credited at the time of raising of goodwill as
well as debited only to the extent of ` 42,000 at the time of writing off of goodwill.

© The Institute of Chartered Accountants of India

 24 INTERMEDIATE (IPC) EXAMINATION: MAY, 2016

Question 7
Answer any four from the following:
(a) Anjana Ltd. is absorbed by Sanjana Ltd.; the consideration being the takeover of
liabilities, the payment of cost of absorption not exceeding ` 10,000 (actual cost ` 9,000)
the payment of the 9% debentures of ` 50,000 at a premium of 20% in 8% debentures
issued at a premium of 25% at face value and the payment of ` 15 per share in cash and
allotment of three 11% preference share of ` 10 each at a discount of 10% and four
equity share of ` 10 each. at a premium of 20% fully paid for every five shares in Anjana
Ltd. The number of share of the vendor company are 1,50,000 of ` 10 each fully paid.
Calculate purchase consideration as per Accounting Standard 14.
(b) What are the disadvantages of a spreadsheet as an accounting tool ?
(c) X owes Y the following sums of money due on the dates started :
` 400 due on 5th January, 2016
` 200 due on 20th January; 2016
` 800 due on 4th February, 2016
` 100 due on 26th February, 2016
` 50 due on 10th March, 2016
Calculate such a date when payment may be made by X in one installment resulting in no
loss of interest to either party. Assume base date as 5th January, 2016.
(d) Classify the following activities as per AS 3 Cash Flow Statement:
(i) Interest paid by financial enterprise
(ii) Dividend paid
(iii) Tax deducted at source on interest received from subsidiary company
(iv) Deposit with Bank for a term of two years
(v) Insurance claim received towards loss of machinery by fire
(vi) Bad debts written off
Which activity does the purchase of business falls under and whether netting off of
aggregate cash flows from disposal and acquisition of business units is possible ?
(e) From the following information available from the books of a trader from 01/01/2015 to
31/03/2015, you are required to draw up the Debtors Ledger Adjustment Account in the
General Ledger :
i. Total sales amounted to ` 2,00,000 including the sale of machine for ` 6,800 (book
value ` 12,000). The total cash sales were 85% Iess than the total credit sales.

© The Institute of Chartered Accountants of India

 PAPER – 1 : ACCOUNTING 25

ii. Cash collections from debtors amounted to 70% of the aggregate of the opening
debtors and credit sales for the period. Debtors were allowed a cash discount of
` 20,000.
iii. Bills receivable drawn during the three months totalled ` 45,000 of which bills
amounting to ` 20,000 were endorsed in favour of suppliers. Out of the endorsed
bills, one bill for ` 6,000 was dishonoured for non-payment as the party became
insolvent, his estate realized nothing.
iv. Cheque received from debtors ` 15,000 were dishonoured, a sum of ` 3,500 was
irrecoverable, Bad debts written off in the earlier year's realized ` 15,000.
v. Sundry debtors as on 01/01/2015 stood at ` 1,50,000. (4 × 4 = 16 Marks)
Answer
(a) As per AS 14 on Accounting for Amalgamations, the term „consideration‟ has been
defined as the aggregate of the shares and other securities issued and the payment
made in the form of cash or other assets by the transferee company to the shareholders
of the transferor company
The payment made by transferee company to discharge the Debenture holders and
outside liabilities and cost of winding up of transferor company shall not be considered as
part of purchase consideration
Computation of Purchase Consideration

`
Cash payment [`15 x 1,50,000] 22,50,000
11% Preference Shares of ` 10 each @ 10% discount 8,10,000
[(1,50,000 x 3/5) x ` 9]
Equity shares of ` 10 each @ 20% premium
[(1,50,000 x 4/5) x ` 12] 14,40,000
Total Purchase consideration 45,00,000
For every 5 shares Anjana Ltd. will receive (i) 4 equity shares @ ` 12 per share and (ii) 3
11% Preference Shares shares @ ` 9 per share.
(b) Disadvantages of a spreadsheet as an accounting tool are as follows:
1. Spreadsheet has data limitations. Depending upon the package, it can accept data
only up to a specified limit.
2. Simultaneous access on a network may not be possible. Many of the modern
softwares allow locking of the table when updation is taking place. This is not
possible in a spread sheet.

© The Institute of Chartered Accountants of India

 26 INTERMEDIATE (IPC) EXAMINATION: MAY, 2016

3. Double entry is not automatically completed in Spread Sheet. Formulas or other

means have to be adopted to complete the double entry.
4. Reports are not automatically formatted and generated but have to be user
controlled. Each time a report has to be printed, settings have to be checked and
data range has to be set. In many accounting softwares this is automatically taken
care of by the program.
(c) Calculation of the average due date
Taking 5th January as the base date
Amount No. of days from the base date i.e. 5th Product
Due date
` January, 2016 `
2016
5th January, 2016 400 0 0
20th January, 2016 200 15 3,000
4th February, 2016 800 30 24,000
26th February, 2016 100 52 5,200
10th March, 2016 50 65 3,250
1,550 35,450

Total of products
Average due date=Base date+ Days equal to
Total amount
35,450
= 5th January, 2016+
1,550
= 5th January, 2016 + 22.8 days
= 5th January, 2016 + 23 days
=28th January, 2016
If the payment is made by X in one installment on 28 th January, 2016, no loss of interest
would arise to any of the parties.
(d) (i) Interest paid by financial enterprise
Cash flows from operating activities
(ii) Dividend paid
Cash flows from financing activities
(iii) TDS on interest received from subsidiary company
Cash flows from investing activities
(iv) Deposit with bank for a term of two years

© The Institute of Chartered Accountants of India

 PAPER – 1 : ACCOUNTING 27

Cash flows from investing activities

(v) Insurance claim received against loss of fixed asset by fire
Extraordinary item to be shown as a separate heading under „Cash flow from
investing activities‟
(vi) Bad debts written off
It is a non-cash item which is adjusted from net profit/loss under indirect method, to
arrive at net cash flow from operating activity.
Purchase of business falls under Investing Activities as per AS 3 “ Cash Flow Statement ”.
The aggregate cash flows arising from acquisitions and from disposals of other business
units should be presented separately and classified as investing activities. Thus netting
of aggregate cash flows from disposal and acquisition of business units is not possible.
(e) In General Ledger
Debtors Ledger Adjustment Account
2015 ` 2015 `
Jan. 1 To Balance b/d 1,50,000 Jan. 1 By General ledger
Jan. 1 to To General ledger to adjustment
Mar.31 adjustment account: Mar.31 account:
Sales 1,68,000 Collection-cash
[(100/115) x and bank[70 % of
(2,00,000-6,800)] (1,50,000+ 2,22,600
1,68,000)]
Creditors-bill Discount 20,000
receivable 6,000 Bills receivable 45,000
dishonoured
Bank-cheques 15,000 Bad debts 9,500
dishonoured (6,000+3,500)
March By Balance c/d
_______ 31 41,900
3,39,000 3,39,000
Note: If credit sales is ` 100, cash sales will be ` 15. Total credit sales shall be 100/115
of ` 1,93,200, i.e., ` 1,68,000.

© The Institute of Chartered Accountants of India